DEFER PAYING CAPITAL GAINS TAX ON THE SALE OF YOUR BUSINESS

Did you know you could defer paying capital gains tax ("CGT") on the sale of your business?

Under the current tax legislation, you may be entitled to certain concessions or relief on any capital gains you derive in selling your business (provided you meet certain conditions, one of them being that you have net assets of $5 million or less).

One of the concessions involves the "rolling over" of any capital gains into a new business or asset that will be used in a business, thereby deferring the payment of your capital gains to a later date (ie, when you sell that new business or asset).

The Australian Taxation Office has confirmed that you may roll over any capital gains on the sale of a business by acquiring an interest in a residential home that will also be used by you in running another business. Because the property will be used in carrying on a business it will qualify for the concession. The fact that you or other persons will use the property for private purposes does not affect your position in accessing the concession.

For example, if a company makes a capital gain in selling its business it may roll over its capital gain (provided it meets all the other requirements for the concession), by buying an interest in a property (ie 30%) from which it will run a new business. The property includes a house, which the company estimates that it will use approximately 30% of the house for business purposes. The remaining interest in the property may be held by you personally and you may use the house as your main residence. Under this example, the company will defer paying the capital gain it derives from selling its business until the property is sold (or another CGT event happens to it).

It is also interesting to note that the ownership interest in the property is not required to correspond to the business use of the property for the roll over concession to apply. Therefore, in the above example, even if the company estimates that it will use approximately 30% of the house for business purposes, it may decide to acquire a 50% interest in the house and still be entitled to utilise the roll over concession for the 50% interest acquired.